LONDON—U.K. Treasury chief George Osborne defended his economic strategy Tuesday during a parliamentary debate on his latest tax and spending plans, after the resignation of a senior colleague highlighted a rift in Britain’s ruling Conservative Party over welfare cuts and tarnished Mr. Osborne’s political reputation.

The row over Mr. Osborne’s economic strategy—a centerpiece of Prime Minister David Cameron’s administration—comes as divisions over Britain’s membership of the European Union are already testing Conservative...